Oil prices, “psychological shortages” and “hope”
Congress promises “stay the course” on drilling

I happened to be reading the NYT’s article today, “Congress Looks for a Culprit” about Daniel Yergin’s anticipated testimony before Congress today when, simultaneously Harry Bergeron made a comment about him on my post, Desperately seeking blame for oil prices.

I intended to just reply, but decided to use it as a separate post to update all.  Afterall, it’s not often the NYTs and I are on the same page about Congressional witch hunts, so to speak. Note the similarity in our “headlines”?

Yergin is going to feel like the lone ranger, as the bulk of other “experts” are set to incriminate speculators as the prime target here.  And, considering that’s what Congress wants to do, they’ve got a cast of characters lined up to basically say, “yep, you’re right… regulate ’em to death”.

NYTs Jad Mouawad starts out with a recap of Congress’s repeated floundering around on the issue. The method has always remained the same… find a scapegoat, and nail ’em but good. They’ve all but turned over every rock with the usual suspects.

On Wednesday lawmakers will hold their 40th hearing so far this year on the cause of high oil prices. Filing bills on Capitol Hill to combat the problem is becoming a cottage industry, with clever names like the Prevent Unfair Manipulation of Prices Act, or PUMP Act, and the No Excuses Energy Act.

Until recently, lawmakers had focused on the traditional suspects: oil companies and the Organization of the Petroleum Exporting Countries. But increasingly, they are casting a suspicious eye on the role of investors, including speculators, in driving up prices.

As the ninth hearing of the month gets under way on Wednesday, one of the nation’s best-known energy experts, Daniel Yergin, is expected to tell Congress that the focus on speculation is largely misguided.

Now that they’ve ID’d their new victim, the parade begins. Likely all will attribute prices to multiple reasons, most (or all) of which I touched on in the “novel” I posted last night. In Yergin’s advance copy of his testimony, he doesn’t “discount” the role of investors, but said their presence was more “a consequence than a cause” of the market prices.

“Financial markets are today playing an increasingly important role in price formation — responding to, accentuating, and exaggerating supply and demand, geopolitics, and other trends,” Mr. Yergin says in the prepared remarks.

But he pointed to a variety of other factors that have made the run-up possible. Nigeria, for example, is producing one million barrels a day less than its production capacity because of disruptions caused by attacks in the oil-rich Niger Delta. Production has stagnated in countries like Russia and Venezuela and is even plunging in places like Mexico.

All these factors have left the global oil industry with little capacity to boost supplies. There is now less than two million barrels a day of unused capacity, a safety cushion that has declined from about five million barrels a day in 2002.

“In a tight market, prices go up,” Mr. Yergin said. “And a tight market is also a market that is more crisis-prone, more vulnerable to the impact of disruptions.”

The Times piece hit on one of Yergin’s statement, bringing up a subject I didn’t think of… the possible link to the continually irresponsible media. i.e. a desperate “psychology” of the market.

Mr. Yergin said the market is relentlessly bidding up oil prices in response to deep-seated fears that the growth in demand will keep outpacing the growth in oil supplies in coming years.

“There is a shortage psychology in the financial markets and that is reflected in the price of oil,” Mr. Yergin said in the interview. “You are seeing a lot of people who have never invested in commodities who are now piling into the market. But calling it speculation is way too simplistic.”

Is this not, in essence, saying that the media doom ‘n’ gloom onslaught of the impending (in their eyes) oil apocalypse may just be a culprit for high prices as well? For certainly they reign supreme when it comes to control of the nation’s “psychology”.

But despite testimony, the DNC led Congress has it’s mind set … that is to ignore all but regulating speculators, and demand consumers “conserve” instead of increasing supply for the increased demand.

Senator Schumer, in an interview, said he could see no easy answers to high oil prices.

“Everyone would like to believe that there is a silver bullet — like a bubble or speculation — that can solve our oil problem,” he said. Instead, he said, it would be better for the nation to focus on conserving energy and reducing its oil consumption.

As for the DNC likely candidate, BHO, (aka Obama for the “initials” police….) he’s busy putting his foot in his mouth, as usual, using strikingly similar language to scoff about “psychological benefits”. Again from another NYTs article, Obama Assails Remarks by McCain on Offshore Oil Drilling:

Senator Barack Obama took a poke at his Republican opponent on Tuesday, saying that for Senator John McCain to talk of a “psychological benefit” from expanded offshore drilling is to define that policy as a gimmick.

Mr. Obama was responding to remarks that Mr. McCain made on Monday in Fresno, Calif., when he observed that even though the nation might take years to benefit from offshore drilling, “exploiting those reserves would have psychological impact that I think is beneficial.”

Mr. Obama seized on those comments while speaking at a town hall-style meeting here.

“ ‘Psychological impact’?” Mr. Obama said. “In case you’re wondering, that’s Washington-speak for ‘It polls well.’ ”

He added, “It’s an example of how Washington politicians try to convince you that they did something to make your life better when they really didn’t.”

Personally that last remark can be cast far wider than “psychological impact”. The bulk of their career is spent trying to convince us that did something other than make our lives more regulated, and took more of our earnings. But let’s not digress.

McCain actually hit on the same point as Yergin, that the sense of future reserves may relieve the “psychological” factor that plays into oil prices.

Think again what Yergin, an expert, says about how psychological shortage is a fuel for speculation. Then compare this with BHO’s incongruous follow up:

Asked in Riverside, Calif., about his remarks on the psychological effects of lifting the moratorium on offshore drilling, Mr. McCain said: “I think Americans want hope. They want some trust and confidence.”

Hope? At least the drilling/psychology has a tangible effect on the market. But what is “hope” but Washington-speak itself?

It’s inevitable that a liberal progressive Congress will tap dance on the heads of “big oil” (i.e. charging them fees for land they lease but don’t drill on, per BHO), strive for windfall profits taxes, possibly make a mess of the stock market with overregulation… in short, do anything but address the problem of supply and demand.

In other words, when it comes to energy, “stay the course” is the rallying cry for the DNC.